Small Business Overview

The Nature of Small Business

• A small business can be defined using two main approaches: market share and total assets.
• Market Share Approach: A small business is independently owned and operated, and not dominant in its field. Ownership can be by an individual, partnership, or corporation. It does not control a significant market share.
• Total Assets Approach: A small business has total assets within a specific range. For example, the Magna Carta for Small Enterprises (R.A. 6977) defines a small business as having assets between P1.5 million and P15 million. This approach simplifies policy implementation.
• Businesses with assets below P1.5 million are categorized as "Microenterprises."

Types of Small Businesses

• Manufacturing: These businesses convert raw materials into products for society. Examples include tricycle assembly, restaurants.
• Service: These businesses provide services.
  • Business Services: Examples include accounting, janitorial, security, and collection agencies.
  • Personal Services: Examples include tutoring.
  • Repair Services: Examples include repair shops for machinery and appliances.
  • Entertaining and Recreation: Examples may include movie theaters, resorts, and entertainment venues.
  • Education: Examples include schools, from Montessori to high schools and correspondence courses.
• Wholesaling: Selling to retailers, merchants, or other businesses, not directly to final consumers. Examples include soft drink wholesalers and suppliers of office equipment.
• Retailing: Selling goods and services directly to final consumers. Examples include drugstores, fast-food restaurants, and appliance stores.
• General Construction Firms: Constructing buildings for private individuals, firms, or the government. This can include subcontracting tasks for larger projects such as electrical work and installing facilities like sewers.

Economic Importance of Small Businesses

• Providers of economic opportunities for entrepreneurs: People not comfortable as employees find opportunities in small business ownership.
• Providers of products and services to consumers: Small businesses often fill niches that larger businesses do not, since producing many goods or services may not be possible or economically viable for larger businesses.
• Suppliers of products and services to other businesses: Small businesses often supply raw materials, semi-finished parts, labor, or finished components to larger businesses.
• Distributors of products and services: Some manufacturers lack the resources to distribute products, with small businesses filling this gap.
• Supporters of government: Through tax payments and other contributions.
• Providers of employment: Many people find jobs in small businesses.

Advantages of Operating a Small Business

• Control over destiny: Owners can choose business opportunities, dissolve businesses, and start new ones. This is not available to employees.
• Reach full potential: Employees may be limited by prescribed targets and lack the flexibility to adapt to new situations, but small business owners can set and adjust their targets quickly.
• Unlimited Profits: All profits accrue to the owner, not the company.
• Contribution to society: Making innovative products, available to the public, and being recognized for it.

Disadvantages of Operating a Small Business

• Income Uncertainty: Income is not guaranteed.
• Risk of losing investment: Potential for loss of the initial capital investment.
• Quality of life: High level of effort required initially.
• Complete Responsibility: Owners are responsible for decisions and outcomes.
• Undesirable customers: Small businesses must deal with all customers, including difficult ones.
• Administrative tasks: Paperwork, and other administrative burdens.
• Demanding Work: Long hours and demanding conditions.

This quiz explores the nature of small businesses, focusing on definitions by market share and total assets. It also highlights different types of small businesses such as manufacturing and service-based enterprises. Test your knowledge on the characteristics and classifications of small businesses.